in SMB Finance

It’s like a scene right out from a sci-fi movie a decade ago, where you held your mobile phone over another phone and instantly transferred money to the other device. Who’d have ever thought that we’d live to see that day; but here it is finally.

UPI or Unified Payments Interface is creating a lot of buzz since its release last week. The very concept is designed to change the banking outlook in India and about time it did; for the better that is. To cut the chase and get right to the point – the UPI is aimed at enabling the end consumer to be able to instantly transfer money to a third party without the hassles involved in online banking or card banking.

This app can be used to pay for any transaction below ₹1 lakh; even for something as low as ₹50

Yes, it’s an app that has been launched by the RBI along with 10 other top banks in India. The interface was developed by NPCI (National Payments Corporation of India) with 10 major banks – SBI, Canara Bank, BOI, ICICI Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, HSBC and Citi Bank having signed up to integrate the app into their mobile banking platform.

On a similar note another leader in the payments technology and processing- FSS announced a partnership with 6 major banks to provide UPI solutions to them. This comes a day after the RBI announced their UPI solutions.

Since a decade now, the RBI has been working towards taking India from a cash based economy to a cashless economy. The introduction of the UPI comes as the ultimate blessing towards this cause. Think of it this way, the UPI will help solve a lot of problems in the banking / payments ecosphere, just like how Debit cards addressed the earlier deficiencies almost a decade back. Now, while the working of UPI can be complex, here’s all you need to know about the UPI work flow.

How Does it Work?

To make it easier to understand, we’ve divided the process into 5 steps and it really is as simple as it looks. Most banks have already integrated the UPI into their mobile banking Apps. The other options is to download the UPI app separately and have it registered to your banking app. The best part about the whole deal is that you no longer have to carry your credit/ debit card to pay for anything; neither do you have to login to net banking in order to transfer money. This innovative payments solution is directed at removing much of the noise around online transacting and physical payments.

How UPI works

The UPI app has been designed to integrate seamlessly into your mobile banking app and in the process, help to eliminate the lag in our present payments infrastructure. The application works like this; it integrates itself into your bank account. Once this app and your banking app are on the same page, it then proceeds to create a unique ID ( a virtual ID) for you. This ID will be used to validate all payments/ requests made by you in the future.

It is this virtual ID that is of particular significance here as it will replace every other authentication currently in place. This means that you will no longer need to go through the process of registering a payee with his bank account number and IFSC code. In a change of scenario , you would no longer need to swipe your card at the POS terminal and then enter your PIN to pay for a transaction, you need only hold the NFC (near field communication) enabled smartphone next to the payment terminal and payment done.

This virtual ID once generated is a unique identifier that will be the basis of all future transactions, and unlike a debit card pin or an online banking credentials, you do not have to remember it or make use of it every time you transact. In reality this ID works more like an address; an address from where money can be taken out and an address to which money can be sent.

So, let’s assume that Krithika wants to transfer money to Azhar; using the UPI tool all Krithika would need to do the transaction is Azhar’s phone number.(9544000000) and therefore the only address that Krithika would need to use to transfer money would be something like this – 9544000000@mobile.npci . UPI, where have you been all this while!


Authentication for the UPI model revolves around two aspects. The Aadhar ID and the mobile number. NCPI has built the model to take both this into account. The idea is to create a central repository of information which can then be used to link various accounts and various authentication factors together. Ultimately this will create unparalleled value add for the payments ecosystem and for the end consumer.


The RBI has stated the Mission and Vision of the payment system as follows

Mission: To ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.

Vision: To proactively encourage electronic payment systems for ushering in a less-cash society in India.

The UPI is an attempt to build a new framework that gravitates towards the two polar positions of the Indian economy.

1- The lack of banking infrastructure among villages in India. Nearly 145 million household among the 6 lakh villages in India are excluded from the banking framework.

2- The mobile market in India. When it comes to connectivity in India, nothing beats her mobile network; the RBI has rightly understood that in order to bring ease of banking to the common man, it needs to start with the mobile network.

Herein lies the irony to itself that India is a country where the number of people in rural areas who do not have access to the banking infrastructure are more than the number of people who have mobile phones. The mobile adoption rate in India has really enabled the economy to take gigantum leaps in various aspects of progress. Desktop / laptop computers have never really penetrated the masses mainly due to their cost and complete inability to be ‘mobile’. None the less, the nature of Indian mobile markets has accessorised many ventures to penetrate the hear of India and reach a section of the people who would otherwise have been termed remote/ inaccessible. This new venture by the RBI aims to truly integrate every one ( also read as every smart phone holder) into the banking ecosphere.

You can also refer to a previous article on our blog, to understand why the mobile network is crucial in India.

Considering the value add that this can bring to a lot of players in the payments ecosystem, it’s fair to expect that the UPI app will see increasing engagement by the end of Q2 and should have presence pan India by the end of the year. While it is still early to analyze in detail the scale of impact that the interface will have on the market, we can assume that non-cash payment volumes will see a spike, in particular when you consider that the app can be used to make payments as small as ₹50.

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UPI reduces the load on the ATM’s, Increases Money transfers.
increases the transactions at little friction accepted places like taxi, commerce.
@ merchants I doubt ,still the friction UPI transaction and acceptance by merchant need to clarify.

There is no mechanism of refund and charge backs.